The Securities and Exchange Commission announced that it filed an emergency enforcement action today in federal district court in Massachusetts and obtained, by consent, preliminary injunctions, asset freezes and other relief against Frank J. Russo, a Massachusetts-based investment adviser and three affiliated entities in connection with a scheme to defraud investors through investments in limited partnerships. The Commission's complaint alleges that Russo, of Wakefield, Massachusetts, and his investment advisory corporation, FJR Corporation ("FJR"), raised at least $15 million from at least 160 investors in 12 states to invest in two limited partnerships controlled by Russo: Russo Associates Limited Partnership ("Russo Associates") and Eliot Partners ("Eliot Partners").

The Commission's complaint alleges that since at least 1996, Russo, FJR, Russo Associates and Eliot Partners offered and sold unregistered securities in the form of interests in the limited partnerships. The complaint alleges that Russo told investors and potential investors that they could expect returns of at least 10% and that he would only earn advisory fees if returns exceeded 10%. The complaint also alleges that Russo told some investors that their funds were being invested in bonds and other investment securities, and that the investments were safe and conservative. However, according to the complaint, Russo diverted at least $11.5 million in investor funds to a private California corporation which Russo co-founded with a college friend. The complaint further alleges that Russo is the California corporation's chief financial officer and that he is one of two directors. According to the complaint, the defendants did not disclose the purported investment in the California corporation to investors in the limited partnerships. To the contrary, the complaint alleges that the defendants sent false and misleading account statements to investors reporting fictional returns in excess of 10% and making false statements concerning the investment strategies of the limited partnerships. The complaint further alleges that, when the purported investment in the California corporation proved unprofitable and illiquid, Russo began paying dividends and investor redemptions with money raised from new investors.

The Commission's complaint alleges that the defendants variously violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 206(1) and 206(2) of the Investment Advisers Act of 1940 and Section 7(a) of the Investment Company Act of 1940. With the consent of the defendants, the Honorable Morris E. Lasker issued a preliminary injunction against further violations of the securities laws, an order freezing defendants' assets, an order prohibiting the acceptance of additional investor funds, an accounting of assets and an order prohibiting the alteration or destruction of relevant documents, as well as other relief, against all defendants. The defendants have not admitted any of the allegations of the complaint, except as to jurisdiction. The Commission also seeks the entry of a permanent injunction, disgorgement of ill-gotten gains, plus pre-judgment interest as to all defendants and the imposition of civil monetary penalties against defendants Russo and FJR.

The Commission acknowledges Massachusetts Secretary of State William Francis Galvin's Securities Division, which first alerted the Commission to Russo's activities and at the same time imposed a temporary restraining order against Russo on May 25, 2006, requiring him to cease all investment advisory activities.